The Meaning Of The 40-Year High In The Bond Market
On Thursday, the 30 Year Treasury Bonds put in a 40-year high! Why are these bonds going higher (i.e., yields trending lower) even after the Fed raised rates, and continues to talk about hiking interest rates in its forward guidance? It simply means that the market does not have a lot of faith in the Fed.
Yellen said this week that negative interest rates are on the table for the U.S. The next Fed meeting in March will be extremely important, and so are the next months, so expect a lot of movement in the markets and all assets.
Meantime, investors should be watching the crude oil market, as it is a proxy for the stock market. Stocks are totally out of control, and they are 100% pegged to oil. The price of crude was trading around $32.50 a week ago, but it touched $26.00 on Thursday. An incredibly volatile market, which is not for the faint of the heart.
The message of OPEC on Thursday to cut production did not change anything on that very same day, but it resulted in a 10% jump on Friday. That is a good first sign for stock investors, but these markets remain dangerous, and more evidence of a trend change is required.
On the other hand, gold, being the beneficiary of the ‘negative interest rate’ talk, is truly exploding. When an asset goes parabolic, as gold did this week, it is a dangerous situation, as retracement and profit taking is just around the corner. There is definitely another chance to get in soon, so don’t chase prices higher.
With negative interest rates on the table in the U.S., and OPEC cutting back production, markets are heavily reacting to that news. Expect more volatility in the short and medium term. We will continue to update readers and subscribers on the trends that are unfolding, so stay tuned!
Watch the market update covering bonds, crude oil and gold (courtesy of Rob Tovell)
Video Length: 00:11:01
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